INVESTMENT EXTRA: Identifying potential at GB Group

GB Group is a company tailor-made for the internet era where so much business is transacted using this virtual medium.

For companies, charities and government, the challenge is not so much mastering the vagaries of the web – it is one of identity: being able to verify that the masses signing up to mobile phone contracts, or taking out loans, are who they say they are.

The proliferation of commerce via the net and the ability to make these checks electronically play right to GB’s sweet spot.

It has created a profitable and cash generative business by leveraging this ability to identify people electronically.

Just over 40 per cent of its revenues are from verification services, with customer registration, marketing services and tracing making up the rest.

It has taken GB a decade to get to this stage, having totally re-engineered the business to move from data on discs to high value online services capable of enabling online business.

In this time it has knitted together 72 different datasets culled from the likes of BT, the DVLA and the credit checking agencies, it is able to search them using proprietary software and algorithms developed in-house.

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These relationships with the data providers and its technical expertise provide a huge barrier to new entrants. And this is a big and growing market.

Last year there were a total of 300m identity checks carried out here in the UK, yet only 45m were made electronically. GB has 16 per cent of that smaller market, which means there is plenty more to aim for.

But the real scale of the opportunity open to GB Group only really materialises when we consider the way in which the online world is developing. In the past four years, internet usage has jumped to 2.3bn worldwide from 1.5bn with the developing nations seeing exponential growth rates.

In that time the number of smartphones – portable links to the worldwide web – has grown tenfold to 1bn while sites such as Facebook and Twitter have sprung from nowhere. However, for the big online operators the land-grab is over. The focus now is on brand, or, more precisely, maintaining integrity.

This is now a world where one misstep can lead to huge collateral damage. So knowing the real identity of that online customer, subscriber or user becomes even more important.

‘Many sites still ask for manual verification. Some of the largest social networks operate by asking subscribers to scan in their passports,’ says GB chief executive Richard Law.

‘It doesn’t really work, and an electronic system would be far more effective and cheaper.

‘The kind of stuff GB does mitigates the risk. It is the kind of thing we have been doing for a long time for banks and gaming companies.’

Online regulation is bound to increase. However, existing legislation – the UK gambling act and the wire act in the US, for instance – suggest businesses and government will need to know more, not less, about the people they are dealing with. All of which plays to GB’s strengths.

What the company believes will be crucial now, and the area in which it is well ahead of the competition, is to be able to provide a global verification solution (it is tantalisingly close to this).

The company made progress in this respect last year, more than doubling the number of countries for which it has data to 14.

At just over 15 times 2014 earnings, the company is valued slightly ahead of the sector average, according to the City research firm Edison.

But this assumes a tax rate of 22 per cent, where the reality is the group has significant tax losses it can deploy. On that basis the P/E drops to 12 and below the average. Underlining its status as a grown-up, cash generative company it also pays a dividend.

OUR VIEW: Up 60 per cent in the past year, the shares have enjoyed a good run. However, GB’s fortunes could alter irrevocably if it can piece together the jigsaw and provide an international solution to internet identity fraud. This is one to buy and hold for the long-term.